Two car companies are planning to launch, at the same time, a car to the market....
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Two car companies are planning to launch, at the same time, a car to the market. Each of them is considering whether it should offer credit to the buyers to reach a larger share of customers. Offering credit would imply incurring a cost of 200 million euros for the company. Both companies prefer not to offer credit, but they are afraid that the other one will do offer and will therefore attract more clients. Suppose that the gross profit for each company is 600 million, independently whether they offer credit or not. If one firm offers credit and the other does not, the first will earn 1000 million gross profits while the other will obtain 300 million profits. (i) What are the strategies of each car company? Represent the game in a matrix form. (Mark: 0.5) (ii) How do you classify this type of game? What is the proper equilibrium concept to solve this game? What is the equilibrium of this game? (Mark: 0.5) (iii) Find the Nash equilibrium of the game and discuss why this equilibrium coincides with the equilibrium obtained in (ii). (Mark: 0.5) (iv) Discuss whether the equilibrium outcome will change if one car company decides first its strategy and then the other company follows. Explain in detail your answer. (Mark: 0.5) Two car companies are planning to launch, at the same time, a car to the market. Each of them is considering whether it should offer credit to the buyers to reach a larger share of customers. Offering credit would imply incurring a cost of 200 million euros for the company. Both companies prefer not to offer credit, but they are afraid that the other one will do offer and will therefore attract more clients. Suppose that the gross profit for each company is 600 million, independently whether they offer credit or not. If one firm offers credit and the other does not, the first will earn 1000 million gross profits while the other will obtain 300 million profits. (i) What are the strategies of each car company? Represent the game in a matrix form. (Mark: 0.5) (ii) How do you classify this type of game? What is the proper equilibrium concept to solve this game? What is the equilibrium of this game? (Mark: 0.5) (iii) Find the Nash equilibrium of the game and discuss why this equilibrium coincides with the equilibrium obtained in (ii). (Mark: 0.5) (iv) Discuss whether the equilibrium outcome will change if one car company decides first its strategy and then the other company follows. Explain in detail your answer. (Mark: 0.5)
Expert Answer:
Answer rating: 100% (QA)
answer i The strategies of each car company can be represented in the following game matrix Car Company 1Car Company 2 Credit 1000 300200 600 No Credit 600 600600 600 ii This type of game is a noncoop... View the full answer
Related Book For
Smith and Roberson Business Law
ISBN: 978-0538473637
15th Edition
Authors: Richard A. Mann, Barry S. Roberts
Posted Date:
Students also viewed these finance questions
-
The Plastic Lumber Company is considering whether it should replace an extrusion machine. The new machine will produce 40% more finished lumber than the old machine. The increase in production will...
-
Suppose that government spending is increased at the same time that an autonomous monetary policy tightening occurs. What will happen to the position of the aggregate demand curve?
-
At the same time as new hires were taking place, many retailers were cutting back. Out of 1,000 Kwik Save stores in Britain, 107 were to be closed. Out of 424 Somerfield stores, 424 were to be...
-
Mr. Silkwallah established the Fashion Clothing Company (FCC) to market designer clothes. The business was to get designer clothes produced by tailors, exclusively for FCC. FCC provides the following...
-
The marketing director of a large department store wants to estimate the average number of customers who enter the store every five minutes. She randomly selects five-minute intervals and counts the...
-
In Problems 942, find each limit algebraically. x + x - 6 lim x-3x + 2x - 3
-
The surface of the gear below the pitch circle is called: (a) Face (b) Flank (c) Bottom tooth (d) Tooth depth
-
Berkshire Corporation purchased a copying machine for $9,800 on January 1, 2009. The machine's residual value was $1,175 and its expected life was five years or 2,000,000 copies. Actual usage was...
-
What can you do to increase the performance of an embedded system?
-
Enter the following sales transaction into the Ledger/Journal. You have negotiated the sale of Mr and Mr Emerald's home at 8 Knowle Court, Ocean Grove for $1,000 000. The purchasers, Mr and Mrs Teal...
-
Duval Co. issues four-year bonds with a face value of $108,000 on January 1, 2019, at a price of $103,920. The annual rate on the contract is 6%, and interest is paid semiannually on June 30 and the...
-
a. If Canace Company, with a break-even point at $398,400 of sales, has actual sales of $480,000, what is the margin of safety expressed (1) in dollars and (2) as a percentage of sales? Round the...
-
Desserts by Jacki's variable overhead cost information for pies last quarter was as follows Actual production in pies 18,000 pies Standard variable overhead cost per pie 3/4 hour $5 per hour Actual...
-
In 2022 Lucia gave a relative, Matias 425 shares of School Products Incorporated., common stock. Lucia paid $9,350 for the stock in 2016. At the date of the gift, the FMV of the stock was $6,800....
-
Why is glucose considered the preferred energy source for cellular respiration ? Explain
-
Annual sales volume Velcro 101,600 Metal 203,200 Nylon 406,400 Unit selling price $ 1.65 $ 1.50 $ 0.85 Variable expense per unit $ 1.25 $ 0.70 $ 0.25 Contribution margin per unit $ 0.40 $ 0.80 $ 0.60...
-
Find valuation of MNC with this international cash flows? A Canadian MNC focuses on the expected dollar cash flows to receive from its subsidiary in Mexico Year 1 Year 2 Year 3 Cash Flows in Mexican...
-
Consider the advantages and disadvantages of extending property rights so that everyone would have the right to prevent people imposing any costs on them whatsoever (or charging them to do so).
-
New West Fruit Corporation (New West) and Coastal Berry Corporation are both brokers of fresh strawberries. In the second half of 2009, New Wests predecessor, Moncs Consolidated Produce, Inc., loaned...
-
Jones, a farmer, found an odd-looking stone in his fields. He went to Smith, the town jeweler, and asked him what he thought it was. Smith said he did not know but thought it might be a ruby. Jones...
-
The Smooth Paving Company entered into a paving contract with the city of Chicago. The contract contained the clause contractor shall be liable for all damages to buildings resulting from the work...
-
Polaris is always directly over (a) the North Pole. (b) any location north of the equator. (c) the equator. (d) the South Pole.
-
What is the star nearest Earth? (a) Proxima Centauri (b) Polaris (c) Mercury (d) the Sun
-
The shape of an active starburst galaxy tends to be (a) elliptical. (b) spiral. (c) irregular. (d) all of these
Study smarter with the SolutionInn App